Correlation Between BCE and Doman Building

Can any of the company-specific risk be diversified away by investing in both BCE and Doman Building at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BCE and Doman Building into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BCE Inc and Doman Building Materials, you can compare the effects of market volatilities on BCE and Doman Building and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BCE with a short position of Doman Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Doman Building.

Diversification Opportunities for BCE and Doman Building

-0.38

Correlation Coefficient

BCE  Doman Building

Very good diversification

The 3 months correlation between BCE and Doman is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Doman Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doman Building Materials and BCE is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BCE Inc are associated (or correlated) with Doman Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doman Building Materials has no effect on the direction of BCE i.e., BCE and Doman Building go up and down completely randomly.

Pair Corralation between BCE and Doman Building

Assuming the 90 days trading horizon BCE Inc is expected to under-perform the Doman Building. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.43 times less risky than Doman Building. The stock trades about -0.12 of its potential returns per unit of risk. The Doman Building Materials is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  789.00  in Doman Building Materials on October 7, 2024 and sell it today you would earn a total of  67.00  from holding Doman Building Materials or generate 8.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BCE Inc  vs.  Doman Building Materials

BCE Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Doman Building Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Doman Building Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Doman Building is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BCE and Doman Building

The main advantage of trading using opposite BCE and Doman Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE position performs unexpectedly, Doman Building can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Doman Building will offset losses from the drop in Doman Building's long position.

The idea behind BCE Inc and Doman Building Materials pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.